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Wall Street dips as tension mounts between U.S. and China

NEW YORK — Wall Street is slipping on Friday after tensions ramped higher between the world’s two largest economies, though the market pared its losses as the morning progressed.

The S&P 500 was 0.4% lower in midday trading, which would wipe out the last of its gains for the week. The Dow Jones Industrial Average was down 118 points, or 0.4%, at 26,534, as of 11:30 a.m. Eastern time, and the Nasdaq composite was down 0.5%. Each of the indexes had been down more sharply in the morning, with the Nasdaq off by as much as 2.3%.

Stocks also sank across Asian and European markets, and all the uncertainty helped gold top $1,900 per ounce, close to its record high. Treasury yields were holding relatively steady, but they remain close to their lowest levels since April.

The coronavirus pandemic remains the most dominant force in markets, with its potential to destroy lives and economies. But other risks are also bubbling up, headlined by Friday’s worsening relations between the United States and China.

Investors are also concerned about a recent uptick in layoffs as spiking coronavirus counts across the Sun Belt lead more businesses to shut down. Extra benefits for those out-of-work Americans from the federal government are set to expire soon, and worries are rising about whether Congress can reach a deal on more aid for the economy. Nearly half of Americans whose families experienced a layoff during the pandemic believe those jobs are lost forever, according to a poll from The Associated Press-NORC Center for Public Affairs Research.

Despite all those challenges, the S&P 500 remains only about 5% below its record set in February, after roaring back from an earlier, nearly 34% plummet. This week’s stall for the S&P 500 follows three straight weekly gains driven by hopes that the economy was regaining its footing. Underlying it all is massive aid for the economy promised by the Federal Reserve, including record-low interest rates.

“The Fed is the big story behind this market, that and the liquidity it’s provided,” said Teresa Jacobsen, managing director at UBS Private Wealth Management. “It gives a great deal of support for upside in the market. But, there are momentary blips when we pause and give a little back.”

On Friday, the blip came after China’s Foreign Ministry ordered the closure of the U.S. consulate in the western city of Chengdu. It echoes a similar move earlier this week by the United States to close the Chinese consulate in Houston.

Such moves have investors on edge because of how viciously markets swung in prior years when President Donald Trump was pressing his trade war with China, before they agreed to a temporary truce early this year.

“Alongside the eviction of the Houston Chinese Consulate, the risk of the U.S.-China conflict escalating into a ‘Cold War’ is worrying,” said Hayaki Narita of Mizuho Bank.

A speech Thursday by U.S. Secretary of State Mike Pompeo saying that “securing our freedom from the Chinese Communist Party is the mission of our time” adds to the rhetoric certain to incense Beijing, making it still more difficult for either side to back down, he said.

Technology stocks have also been in the spotlight, after a sharp slide for them on Thursday helped drag the S&P 500 to its worst loss in nearly four weeks.

Microsoft, Apple, Amazon and other giants have cruised through much of the pandemic on expectations that they can keep growing despite all the challenges for the economy. But critics say enthusiasm for them was overdone, with prices too high even after accounting for the huge profits that they can produce.

Apple slipped 0.6%, Microsoft dropped 0.2%, and tech stocks as a group accounted for roughly half of the S&P 500’s loss. Earlier in the morning, Apple had been down 4%, and tech stocks were responsible for two thirds of the S&P 500’s drop.

Intel sank 15.3% after it delayed the release of its new 7 nanometer chip, and it was the biggest weight on the market Friday morning.
Earlier in the day, stocks in Shanghai sank 3.9%, while the Hang Seng in Hong Kong lost 2.2%. Elsewhere in Asia, South Korea’s Kospi fell 0.7%.
In Europe, France’s CAC 40 fell 1.5%, and Germany’s DAX lost 1.9%. The FTSE 100 in London dropped 1.3%.
The yield on the 10-year Treasury held steady at 0.58%. It tends to move with investors’ expectations for the economy and inflation.
Gold rose 0.5% to $1,900.30 per ounce, crossing above that threshold for the first time in nearly nine years. Benchmark U.S. crude slipped 14 cents to $40.93 per barrel. Brent crude, the international standard, lost 10 cents to $43.21 per barrel.